C&S Flashcards
Outcome Economy
Economy contingent on the marketing, pricing and selling of goods and services based on the results or outcomes they produce for customers, rather than on an item or service’s face value
Impetus on understanding the customer and quantifying results in real time
Efficient Market
Share prices reflect all relevant information. Weak form means that past prices have no effect on future prices, semi-strong form means that markets adjust quickly to new information, strong form means that prices reflect all relevant information immediately
Important when considering if share price accurately reflects the information in the case, why or why not?
Economic Efficiency
Resources are allocated in the best way possible without any waste or inefficiency
Identify the problems that arise when this is not the case
Market Failure
An inefficient distribution of good or services in the free market. Individual rational behavior does not lead to rational outcomes for the group.
Externalities, monopoly privileges, information asymmetries and factor immobility
Free Rider Problem
When some individuals consume more or pay less than their fair share of a shared resource. People taking advantage of being able to use a common resource or collective good
Pharma IP rights, Fishbanks - usually require some form of government intervention
Externalities
A positive or negative consequence of an economic activity experienced by an unrelated third party
Pollution by a bottling factory - does not affect producer or consumer but affects the nearby residents and is therefore a negative externality
R&D - positive externality generated by companies spending billions on research that can be copied for free
Information Asymmetry
Decisions in transactions where on party has more or better information than the other. Two conditions must be met:
Information needs to have value
There must be no cost effective way for other party to acquire the credible information they are missing
Taxi industry
Factor Immobility
When it is difficult for factors of production to move between different areas of the economy. Can be geographic (one area to another) or occupational (one type of work to another).
Important when considering production issues
Silver Bullet
Direct and effortless solution to a problem
Prof likes to use this to describe when something is not a silver bullet
Arbitrage
A trade that profits by exploiting the price differences of identical or similar processes in different markets or in different forms
Rana plaza wage arbitrage
Toxic Assets
Assets that become illiquid because they are widely perceived as a guaranteed way of losing money
Fishbanks boats when fish populations decline
Tragedy of the Commons
Generally involving a shared resource, when individuals neglect the well being of society for personal gain
Fishbanks
Social Norm
A prevailing social behavior or customer that influences our day to day behavior
Can solve the tragedy of the commons theoretically
Game Theory
Models an effective competitive strategy among rational player
Nash Equilibrium
Where individuals can receive no incremental benefit from changing their actional assuming all other players in the game remain consistent in their strategies
Fish banks overfishing
Tit For Tat Strategy
Agent begins by cooperating and subsequently replicates his opponents previous action
An effective strategy in the prisoner’s dilemma
Regulatory Capture
Form of government failure where a regulatory group made to act in the public’s interest instead acts on the interests of of the commercial or political group that dominate the given industry or sector
Think about it whenever you have a regulatory committee
Common Property Resource
Natural resource owned and managed collectively by a community or society instead of individuals
Goes hand in hand with tragedy of commons and free rider problem forms of market failure
Market Mechanism
The process by which a market solves the problem of allocating resources
For example deciding how much of a good or service should be produced
Natural Capital
The worlds stocks of natural assets
Tradeable Permits
Instruments that allow a market to direct environment efforts
Typically emission based
Political Risk
Geopolitical Risk
Risk that an investment’s return will suffer from the results of a political change or a country’s instability. Becomes more of a factor as the time horizon of an investment grows longer
Keystone Pipeline, Ontario government cap and trade
Tail Risk
Deal with events that have a small probability of occuring and occur at both ends of the normal distribution curve
Keystone Pipeline, Rana Plaza
Social License
Ongoing acceptance of a company or industry’s standard business practices and operating procedure by stakeholders
Closely related to sustainability and triple bottom line
Triple Bottom Line
Social responsibility, economic value, and environmental impact of a business or entity
Political Capital
Resources and power built through relationships, goodwill, trust and influence between politicians and other stakeholders. An invisible currency.
Can be closely tied to political risk, organizations ought to reduce their stake in political capital
Clout
Power or influence
Inalienable Resource
Resources where consumers have an inherent right to consume
Right to vote, right to freedom, right to live, etc
Monopoly Privilege
When a government grants a monopoly
Pharma patent durations
Incumbents
Existing players within a market
Dynamics between new entrants and incumbents are often explored
Stranded ASsets
An asset that becomes obsolete or non performing well ahead of its useful life and has to be recorded as a loss of profit
Regulatory risk around climate change may cause high cost fossil fuel reserves to become stranded assets
Green Bonds
Bonds that fund projects that have a positive environmental impact
Operational Risk
Risk that is unrelated to financial or systematic risk
Relates to internal procedures, people, and systems
Systematic Risk
Also known as market risk, is the risk inherent to entire market or market segment
Command and Control
The direct regulation of an industry or activity by legislation that states what is permitted and what is illegal
Safety regulations
Marginal Abatement Cost (MAC)
Cost to reduce one unit of pollution
Emission Leakage
Occurs when an emission reduction in one country leads to an increase in emissions in another country
Trade exposure in carbon regulated markets
Consortium
When two or more organization pool together their resources to achieve a common goal
Amalgamation
Combination of two or more companies into one new entity, none of the previous companies survive as a legal entity after the amalgamation process
Non profits organizations around work safety
Stranded Asset
Assets that have suffered unexepected write downs, devaluations or conversions to liabilities
Carbon permits when a cap and trade system is lifted
Funder Fatigue
The slowing in funding momentum as a result of too many funding activities or too large of asks
Many nonprofits lobbying for the same goal independently
TF: undesirable market outcomes are always caused by a market failure or externality
F - well functioning markets can still have undesirable outcomes
Natural Monopolies
Natural Monopolies
Huge scale economies mean that 1 producer is the most efficient
Gas, electricity, water
What are the different types of market failures?
Externalities, natural monopolies, information asymmetry, public goods, uncompetitive industry outcomes
how do governments intervene when there is a market failure?
governments can take ownership
- national defense, police, education
regulate industry structure
- ease of entry
- number of players
regulate industry conduct
- pricing
- supply
- quality
- information disclosure
what is the key argument against government intervention?
governments can also fail
what are examples of ways that a government can fail?
- government can be motivated by election concerns
- can be captured by special interest groups
- can have imperfect information about the market
- solution to market failure can create others
what are the two conditions that must be met for information asymmetry to exist?
information must have value, there must be no cost effective way to obtain the information
what are some solutions to solve the tragedy of the commons?
government can create market mechanisms
government can set production technology standards
industry can self regulate –> cooperation
consumers can change their purchase patterns
